As China emerges from its rigorous COVID-19 measures, its economy is steadily stabilizing and showing signs of improvement. Amid a promising economic outlook, I seek to highlight the significant potential for solid returns in fundamentally sound China stocks Hello Group Inc. (MOMO), Waterdrop Inc. (WDH), and Tarena International, Inc. (TEDU), currently trading under $10.
China experienced one of the worst levels of economic growth in decades last year, with its Gross Domestic Product (GDP) growing by 3% in 2022, marking the second-slowest growth rate since 1976. However, as stringent COVID-19 lockdowns are lifted, the world’s second-largest economy is stabilizing and improving steadily.
The reopening of the Chinese economy after several years of strict “zero-Covid” measures has buoyed sentiment among economists as they expect the global growth and inflation picture to be less weak than initially feared in 2023. Standard Chartered PLC’s (SCBFF) chairman José Viñals predicts China's economy will be “on fire” in the second half of 2023.
Furthermore, Goldman Sachs Group Inc. (GS) forecasts that Chinese stocks might rise by as much as 24% by the end of the year. It added that the COVID-19 pandemic is now “arguably in the rear-view mirror” in China, and the moves would be reminiscent of a transition from the “Hope to Growth” phase in a typical equity cycle.
Against this backdrop, it could be wise to invest in quality Chinese stocks MOMO, WDH, and TEDU.
Hello Group Inc. (MOMO)
Headquartered in Beijing, China, MOMO offers mobile-based social and leisure services. It runs the Momo platform, which comprises the MOMO mobile app and other features, functionalities, and services. Additionally, it runs Tantan, a social and dating program.
As of December 8, 2022, MOMO repurchased 12 million ADS for $56.7 million on the open market at an average price of $4.71 per ADS. This progress aligns with the share repurchase program approved by MOMO on June 7, 2022, which authorized the company to buy back shares for up to $200 million within 24 months.
MOMO’s income from operations for the fiscal third quarter that ended September 30, 2022, increased 12.9% year-over-year to $73.12 million. The company’s income before income tax and share of income on equity method investments grew 16.7% from the prior year’s quarter to $87.83 million.
In addition, net income attributable to the shareholders of MOMO rose 11.8% year-over-year to $63.38 million, while its EPS came in at $0.15, representing a 14.6% increase from the prior-year period.
The consensus revenue estimate of $1.86 billion for the fiscal year ending December 2023 reflects a marginal year-over-year improvement. The consensus EPS estimate of $1.32 for the ongoing year indicates a 3.9% rise from the previous year. Furthermore, MOMO surpassed its consensus revenue and EPS estimates in three of four trailing quarters, which is impressive.
Shares of MOMO have gained 76.7% over the past six months to close the last trading session at $8.94.
MOMO’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a Value grade of A and a Quality grade of B. In the China industry, it is ranked #10.
Beyond what we stated above, we also have MOMO’s ratings for Growth, Sentiment, Stability, and Momentum. Get all MOMO ratings here.
Waterdrop Inc. (WDH)
With its headquarters in Beijing, China, WDH offers online insurance brokerage services to match and connect customers with relevant insurance products underwritten by insurance companies. The business provides short and long-term health and life insurance services and products.
On February 8, 2023, Huang Mingxing, the head of WDH's AI division, declared that WDH had internally tested a ChatGPT-like application and would use it for insurance marketing and services.
The company expects the intelligent chatbot to complete simple insurance marketing jobs independently, such as presenting short-term insurance products with simpler insurance clauses to customers and answering customer questions in the process. WDH could benefit from improved customer experiences.
Also, on January 4, WDH and Jemincare announced a collaboration to launch the “Digital Service Platform for CKD Patients.” The platform is anticipated to improve patients’ experiences by providing effective, convenient, and integrated chronic disease management services even if they don't visit hospitals. The new launch could bode well for the company.
For the third quarter that ended September 30, 2022, WDH’s operating profit stood at RMB132.56 million ($19.12 million), compared to an operating loss of RMB512.99 million ($73.97 million) in the prior year’s quarter. The company’s adjusted net profit amounted to RMB215.73 million ($31.11 million), compared to a net loss of RMB453.64 million ($65.41 million)
Furthermore, profit per share attributable to ordinary shareholders stood at ¥0.04, compared to a loss of ¥0.12 for the previous-year quarter. As of September 30, 2022, the company’s total assets stood at RMB 5.77 billion ($832.10 million), compared to RMB 5.25 billion ($757.14 million) as of December 31, 2021.
Analysts expect WDH’s EPS to increase 5.2% year-over-year to $0.16 for the fiscal year ending December 2023. The company’s revenue for the current year is expected to rise 9.4% from the prior year to $458.33 million. Furthermore, WDH surpassed its consensus revenue in three of four trailing quarters.
The stock has gained 175.5% over the past six months to close the last trading session at $3.03.
WDH’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
WDH has a B grade for Growth, Momentum, Sentiment, and Quality. Within the same industry, it ranks #7.
In addition to the POWR Ratings I’ve just highlighted, you can see WDH ratings for Value and Stability here.
Tarena International, Inc. (TEDU)
TEDU, headquartered in Beijing, offers professional education services through full-time and part-time classes under the Tarena brand. Its segments include Adult Professional Education; and Childhood & Adolescent Quality Education Services. The business provides education in seven Information Technology (IT) disciplines.
On February 27, 2023, TEDU announced that it had become one of the first authorized ecosystem partners of ERNIE Bot, Baidu, Inc.'s (BIDU) generative AI chatbot. As a part of the ecosystem, TEDU would have priority access to ERNIE Bot to explore its applications in different educational scenarios, marking the first application of the conversational language model in professional education.
This initiative is not only expected to prepare TEDU students for high-paying jobs in the digital economy, but it would also add to the future advancement of generative AI technology through its application in education. This should strategically benefit the company.
For the fiscal 2022 third quarter that ended September 30, TEDU’s net revenues increased 4.6% year-over-year to $90.40 million, and its gross profit rose 13.1% year-over-year to $49.80 million. The company’s non-GAAP operating income, which excluded share-based compensation expenses, was $4.20 million, up 135.8% year-over-year.
The company’s non-GAAP net income per ADS came in at $0.36, an increase of 104.4% from the previous-year quarter.
Shares of TEDU have gained 100% over the past year to close the last trading session at $5.00.
TEDU’s POWR Ratings reflect its strong prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value and Quality. It has topped the China industry.
To see additional POWR Ratings for Sentiment, Stability, and Momentum for TEDU, click here.
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MOMO shares were trading at $8.84 per share on Tuesday morning, down $0.10 (-1.12%). Year-to-date, MOMO has declined -1.56%, versus a 3.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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